Japanese Government More Optimistic on Recovery

By BETTINA WASSENER

May 20, 2013

HONG KONG — The Japanese government struck a more confident note on the economy’s prospects Monday, and a survey showed that manufacturing sentiment had turned positive for the first time in a year — the latest sign that Prime Minister Shinzo Abe’s policies were taking hold.

At the same time, a monthly poll measuring sentiment in the manufacturing sector, published by Reuters, jumped 11 points to plus-7 in May — the highest reading since September 2011 and the first reading above zero in a year. Readings above zero show that optimistic responses outnumber pessimistic responses.

Since taking office in December, Mr. Abe has pursued a three-pronged strategy for resuscitating growth in the Japanese economy, the world’s third-largest economy, after those of the United States and China.

The first two of the so-called “arrows” with which he is fighting economic malaise — major spending programs and monetary policy that has effectively flooded the economy with cheap money — have already helped weaken the yen and set off a remarkable rally in the Japanese stock market. The Nikkei 225 index climbed another 1.5 percent Monday, increasing its gains since the start of 2013 to nearly 48 percent. The weaker yen, meanwhile, has meant a windfall for exporters.

The policies helped bring about “a V-shaped recovery,” Akira Amari, the minister in charge of economic revitalization, said in a televised news briefing Monday.

Data released last week, showing that the economy had grown at an annualized pace of 3.5 percent in the first quarter of this year, more than analysts had expected, provided one of the first indications that Mr. Abe’s policies were bearing fruit.

Solid earnings outlooks from Japanese companies in recent weeks also have underlined the positive effects of the weaker yen. The yen has dropped about 30 percent against the U.S. dollar since November 2012, helping to improve the international competitiveness of Japanese corporations.

At the same time, however, many analysts have cautioned that the “third arrow” — structural overhauls to make the economy more competitive — will be needed if the turnaround is to be sustainable over the long term.

Mr. Amari, speaking Monday morning, acknowledged that more work needed to be done. Corporate capital expenditure, for example, remained in negative territory, he said. He added that the government would focus on creating a pro-business environment that would swiftly increase spending.

Meanwhile, the Japanese central bank, whose announcement April 4 that it would aggressively buy longer-term bonds as part of a major bid to combat crippling deflation, is expected to hold off on any more stimulus action at its next policy meeting this week.